The class action alleged that American International Group (AIG) and its subsidiaries had intentionally under-reported workers’ comp premiums to state regulators for decades, in an attempt to pay smaller premium taxes and residual market charges before 1996.

In the class action, insurers said AIG’s scheme hurt them financially because AIG, with its under-reporting, was allowed a smaller share of the high-risk residual market assessments.

According to the settlement, formally approved by U.S. District Court Judge Robert Gettleman on Feb. 28, AIG will pay $450 million, which will be divided up among commercial insurers that were affected by AIG’s alleged scheme.

The settlement class was certified in July 2011 by Judge Gettleman and the $450 million settlement was given preliminary approval last December.

But Liberty Mutual, one of the insurers in the class action, argues that the settlement is inadequate. The current settlement assumes that AIG under-reported its workers’ comp premiums by $2.1 billion, an amount that the opponents of the settlement are calling too small.

“Liberty Mutual is disappointed – but not surprised – with the Judge’s final written order approving the settlement. Liberty Mutual has filed an appeal,” Liberty Mutual spokesman Richard Angevine told Insurance Journal.

“We respectfully and vigorously disagree that the settlement is fair, reasonable and adequate. The settlement was negotiated by conflicted parties and it is unfair because it reflects damages of $2.1 billion, far less than the $6.1 billion in actual damages demonstrated by the court-approved statistical model.”

Angevine added: “Liberty Mutual remains committed to making sure that AIG is held accountable for knowingly under-reporting workers compensation premiums to various insurance pools for more than two decades.”

Those in favor of the current settlement include AIG as well as Hartford Financial Services Group, Travelers Indemnity, Technology Insurance, Ace Ina Holdings, Auto-Owners Insurance, Companion Property & Casualty Insurance and Firstcomp Insurance.